Impact of formula-Based
erp applIcatIons on
WHITEPAPER EssEntials for chEmical manufacturErs 2
Whether you’re in the process of re-evaluating your existing ERP solution or
looking to replace your spreadsheets, it’s important to focus your search on
applications with strong capabilities to support your unique requirements,
so you don’t have the change the way your business operates.
This practical guide links the unique business processes of the chemical
industry to specific software capabilities available in formula based ERP
solutions. Case study references provide insight into the capabilities needed
to manage by-products and co-products, variability of ingredients, and
finished products and processes. It also address how the right ERP solution
can significantly improve product costing, production predictability, and
scalability, as well as compliance issues related to traceability and MSDS.
Whether your process includes distillation, refinement, recovery, or
production, this ERP essentials guide will help you choose a solution that is
right for your needs. A checklist of specific capabilities is also included for
use during the evaluation process.
WHITEPAPER EssEntials for chEmical manufacturErs 3
Today’s chemical industry is faced with a multitude of
challenges, including rising costs of raw materials and energy,
price and margin pressure, global competition, product
innovation and differentiation, and increasing risk and
regulation. What’s more, chemical companies must be nimble
enough to take advantage of opportunities in the global
marketplace, while being able to address changing customer
dynamics and manage the intricacies of a tight economy.
An ERP solution for the chemical industry needs to address
its unique manufacturing and financial businesses processes,
including manufacturing formulation, costing and quality
control, materials and production planning, maintenance
management, accounting, budgeting, planning, and
With the right solution in place, chemical companies can
sustain or increase customer satisfaction; improve profitability;
ensure high quality, consistency and efficiency; and overcome
the limitations of slow, error-prone manufacturing processes.
Most ERP solutions support the needs of accounting and
financial functions, but when it comes to purchasing,
inventory, manufacturing and sales, they don’t always meet
the needs of a chemical manufacturer. Why? Most “standard”
ERP solutions were designed for discrete manufacturing
(typically physical products that go directly to businesses
or consumers, or are used as assemblies in other products)
instead of process manufacturing (using a formula using
ingredients to create a bulk output). If you are investing in an
ERP solution, you’ll want to choose an application with best
practices for your industry built into the solution, without
adding extra cost and implementation effort.
This practical guide examines several key areas of process
manufacturing in terms of key ERP functional capabilities, data
model characteristics, and enabling technologies, specifically:
• The inventory, accountability, and management of common
• The ability to predict yields, scale production, and accurately
• The effect of variable product characteristics and inventory
attributes, such as package weights, expiration dates, and
multiple units of measure, on inventory management, order
management, production scheduling, manufacturing, QC
management and product costing
• The impact of the ERP architecture and design on the
application’s functionality and maintenance
• The ability to track and trace all products as well as
At the end of this document, a summary of these critical
areas is provided as a functional questionnaire to be used
during your software vendor’s product demonstrations. As you
select the right fit solution for your company, you should also
consider a software provider’s industry experience, expertise,
and support. This is an important consideration that will
impact your ERP implementation, and it is as important as the
product architecture and capabilities.
Variability impacts the consistency and quality of finished
products. A good indication that an ERP application is capable
of managing product variability is that it supports an unlimited
number of product characteristics for both raw material
and finished products. It should support user-definable
characteristics as well as industry standard characteristics, such
as pH, potency, moisture content, and expiration date.
Formulation and process control are the primary concerns in
chemical manufacturing operations, where variability creates
significant challenges for process specifications. Raw materials
are purchased and finished goods are produced in a variety
of quantities, potencies, and qualities. The ERP application
must be able to identify these variability’s, in addition to
the fluctuating cost of both raw materials and packaging
materials, in order to adjust production jobs.
Managing variability starts with a purchase order for raw
material with specific product characteristics. At the time
WHITEPAPER EssEntials for chEmical manufacturErs 4
of receipt, these raw materials are inspected and validated
against a set of tolerances. Once received, lot numbers can be
assigned to raw material inventory so that it can be tracked
throughout the manufacturing process.
Chemical manufacturers are often required to deliver finished
products to customers that meet certain requirements. A raw
material might meet one process specification, but it might
not meet another. An ERP solution can provide full visibility
into available raw materials inventory and their product
characteristics, so that manufacturers can deliver products
that meet customer requirements.
An ERP application based on formulas can be used to manage
all raw materials, packaging materials, and multiple finished
goods, while delivering a high level of predictability and
repeatability. This formula should define the manufacturing,
yield, quality, routing and costing processes. Variable product
characteristics, such as potency grade, pH, or moisture
content, determine the ingredient proportions and equipment
settings in certain process stages.
To manage this variability during production, the ERP
application should allow manufacturers to make adjustments
to the base formula specifications in terms of ingredient
proportions and equipment settings, without affecting the
definition of the original “base” specifications. Variations
of a formula specification can also account for differences
between plants, shifts, production lines and equipment, as
well as customer requirements, such as private label products.
of ScAlEd PRoducTIon
Formula specifications are designed to produce one or more
finished products in bulk quantities. A batch run is expected
to produce a quantity of finished products within a given
range in a certain time period. For example, a chemical
reaction within 10 liters of a solution takes the same time as
50 liters of the same solution in the same vessel. When batch
runs are scaled up or down, the batch quantity ranges and
the production times follow a “step” function rather than a
When a chemical manufacturer scales production, the ERP
application should be able to predict finished product yields,
and deliver consistent results, in terms of quantity and quality.
Accounting for all material and operational costs in the
manufacturing process is one of the biggest challenges facing
many manufacturers. Without accurate and up-to-date cost
information, they cannot make informed decisions on key
business issues, such as new product pricing strategies. A
manufacturer needs to be able to link finished products
to customer volume discounts, promotional rebates and
incentives, in addition to the cost of raw materials, to
An ERP application should be able to capture, assign and
compare actual and standard costs for all finished products.
Waste products typically have the cost of disposal charged
back to the primary product. Unexpected off-spec products
can be considered as waste or stored and held in quality
control status, then sold for a given market value. By-products
are typically assigned a straight cost, but in situations where
the by-products, such as reclaimed solvents, are available
for sales, their revenue can be credited back to the primary
product. Co-products are typically assigned a cost, based on
some percentage in the job or a specific product characteristic
such as quality, weight, potency, or market value. By
capturing actual versus standard costs for co-products and by-
products, chemical manufacturers are able to optimize their
For discrete manufacturers, assembly and packaging are the
standard processes that are executed in an ERP application
based upon a multi-level bill of materials and routing
WHITEPAPER EssEntials for chEmical manufacturErs 5
It’s much more complicated in the chemical industry, when
different products are being processed to meet different
customer specifications. For example, a cleaning agent might
be produced in barrels for one customer or packaged in
plastic bottles for another. Or the end product might include
an added scent for one customer and without for another. In
addition, there may be continuous flow processes linked to
batch processes that need to be managed and kept in synch.
The ERP application should be able to employ formula
specifications to manage processing and packaging. By linking
production and packaging specifications, but maintaining
them separately, chemical manufacturers are able to:
• Produce different finished products that are similarly
• Produce product for future private labeling
• Produce and track intermediates (such as a cleaning agent
packaged in a barrel that will be dispensed into smaller
containers after color and scent is added)
Flexible formulas allow chemical manufacturers to model their
processes in a series of controllable and repeatable process
MAnAGE MulTIPlE unITS
Multiple units of measure are used in many chemical business
processes: goods may be purchased in one unit of measure,
stocked in inventory in another, issued in finished goods in
one more, then sold in another. The ERP application should
allow process managers to manage inventory in terms of
bulk units or measure (gallons or pounds), packaging units
(pails or large drums) and random attributed (variable weights
and potencies) at the same time. Inventory can be costed by
potency units, solid percentage, or any other unit.
Product variability plays a role in unit of measure conversions.
Process-oriented ERP applications typically support user-
defined and automatic UOM conversions (liquids to solids,
gases to liquids) that are initiated within the manufacturing
process, as well as from specific changes in inventory
From purchasing through inventory, order management
through shipping, the ability to work with multiple UOMs
improves both performance and customer service.
Summit Industrial Products, a synthetic lubricant
manufacturer and member of the Kluber Group,
offers private labeling to its customers. Gear
lubricants, hydraulic fluids and compressor
lubricants are blended and stored in large volumes
in tanks. The fluids are packed out based on color
of container, size of container, and label on the
container. “We can have an infinite number of
private labels associated with core part code. For
instance, SH-46 is our lead compressor lubricant
product. I may have 200 private labels associated
with that. The core formula is still the same, but it
gives me the ability to name it something unique in
the system, to track it that way, to give it a unique
color of pail, unique unit of measure - and other
unique requirements that the customer requires.
Some customers may have three or four different
private labels on the same product.”
EVP - Finance and Administration
Summit Industrial Products
WHITEPAPER EssEntials for chEmical manufacturErs 6
Managing expiration dates can be an on-going challenge for
chemical manufacturers, as some substances may lose their
effectiveness after a certain period of time. An ERP solution
can help improve inventory management by offering better
shelf-life control. It should offer basic inventory rotation
methods (e.g.first in, first out (FIFO), last in, first out (LIFO),
and first expiration/first out (FEFO)) when selecting ingredients
for production based on the supplier or packer production
dates. These selection criteria can also be carried forward
when selecting product to ship to customers, based upon
By ensuring that the best rotation methods and quality
standards are followed during the order fulfillment process,
process-oriented ERP applications can significantly reduce
customer charge-backs, prevent transactions for expired lots,
and notify users when inventory is getting close to expiration.
The result is improved product quality, greater customer
satisfaction, and less waste from expired inventory.
dElIVER HIGHER QuAlITy
When it comes to making quality decisions in process
manufacturing, a higher degree of variability often results
in a range of acceptability. An ERP application can help
manufacturers to track the quality conditions of raw
materials and finished goods and make better decisions
about product quality. Greater variability requires more robust
quality management capabilities, as well as lot management
The ERP applications should support the definition of quality
checks of raw materials and finished goods in the formula
specification to ensure that they are executed in proper
sequence in a certain process stage. By collecting and
analyzing quality data, a manufacturer can identify problems
with raw materials, finished goods, and equipment.
To reduce quality issues tied to production startup losses,
manufacturing processes, and scrap and rework activities,
manufacturers need real-time visibility into overall plant
performance, including product quality and equipment
performance trends. By collecting relevant real-time data
from plant operators and existing automation, real-time
performance management measures rates, yields, utilization,
overall equipment effectiveness, and per-unit cost data. When
this real-time performance data is evaluated, performance
issues can quickly be identified so that repetitive problems can
be eliminated and issues can be resolved.
SI Group (formerly Schenectady International,
Inc.), a privately-held, global chemical company,
discovered a significant difference in the number
of data model tables when moving from a leading
ERP software application to an industry-specific
ERP application. “Our first ERP solution had
approximately 12,000 database tables that were
difficult to decipher, whereas our current ERP
solution has approximately 2,500 tables that have
intuitive names. Through simplification and focus, SI
now has a robust, functional system that has greatly
streamlined global deployment and maintenance of
the ERP system.”
Director of Global Information Technology, SI Group
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Traceability is a crucial ERP function that is responsible for
tracing and tracking the lineage of all raw materials and
finished products, based on their characteristics and lot
numbers. Due to the batch run quantities produced in process
manufacturing, the ERP application should be able to trace
and track an ingredient even if it is only present in miniscule
amounts. For example, if a volatile organic compound
(VOC) is included in the finished product, it must be tracked
in compliance with government regulations, as well as to
facilitate recalls if an issue results. An example includes certain
chemicals in fertilizers that are explosive or highly flammable.
The ERP application should be optimized for full lot
traceability from raw materials through production, tracking
finished goods from supplier invoice to customer invoice, and
identifying the raw materials and resources that produced
the finished products. As customers and regulatory agencies
require process manufacturers to deliver 100% accurate lot
traceability within a short period of time, bi-directional lot
tracing allows manufacturers to respond to product recalls in
minutes, rather than days.
An ERP application simplifies the procedures necessary
to demonstrate compliance to customers and regulators.
Thorough records of quality management and lot
maintenance should be easily accessible, as well as an audit
trail of changes that occur during the process.
Look for an ERP application that includes predefined labels
reflecting standard terminology in the chemical industry,
extending from label naming conventions to database table
and field naming conventions. Chemical manufacturers
should expect to see formulas, ingredients, co-products and
by-product naming conventions reflected in the labels used
in screen transactions and reports. These predefined labels
can reduce the initial system configuration and ongoing
maintenance costs, as well as reduce the risks involved in
performing the activities.
Field level definition is commonly overlooked when
investigating an ERP application. For example, tracking a
very miniscule or trace amount of an ingredient in a finished
product requires certain data fields to be defined with the
right number of decimals, such as specific gravity or MSDS on
If you’re a chemical manufacturer searching for the right ERP
application or are in the process of re-evaluating your current
ERP application, you should focus on applications with a
strong process manufacturing foundation that easily manages
the unique requirements of your industry.
By investigating available ERP applications, you will discover
that a formula-based ERP application can successfully manage
the variability of products and processes, accurately account
for all raw material and finished products, and significantly
improve product costing, production predictability, and
scalability far better than a generic or discrete-oriented
application. Designed with the right baseline functional
capabilities, data model structures and enabling technologies,
a formula-based ERP application can support your business
requirements with minimal customization and consulting
services. A focused solution will conform to your business
rather than requiring you to change your business to use
it, while reducing operating costs and improving customer
WHITEPAPER EssEntials for chEmical manufacturErs 8
ERP cHEcklIST foR THE
To help you evaluate and select the ERP application that is
right for your business, use this checklist to create your own
side-by-side comparison of ERP applications.
Improving Production Through Formula Management
• When stages within a formula are linked together, can the
output of one stage become the input for the next stage,
without having to perform an intermediate inventory
transaction or define an unnecessary intermediate
• How does the system handle “conversion,” where the
actual output is converted from the planned/scheduled
• Can yield be measured by operation and across the
• Does the system support different units of measure
throughout the process specification (e.g., variable
weights, units, pounds, cases, barrels)?
• Does the system support input-driven (for supply) as well
as output-driven (for demand) process specifications?
Managing the Variable Characteristics of Products
• Can the system update actual product characteristics based
upon QC values recorded during manufacturing?
• Can the system accept or modify formulas based on actual
values, such as moisture content or potency?
• Reducing customer chargebacks and inventory write-offs
with expiration date management
• Can distribution days (minimum days of shelf life that must
remain when product is shipped) be defined separately
from standard shelf life?
• Can the system net the quantity of product reaching
expiration from available quantity if demand does not
consume all available inventory of that lot/batch by its
Improving Product Costing
• Can actual costs be tracked and compared to standard or
• Do you have options for standard cost, weighted average
cost or actual cost by lot?
• How are costs for co-products and by-products handled?
• Can the estimated cost of a process specification be
compared with the actual cost of a job/batch?
• Can future costs be used to provide what-if comparisons
of total cost?
• Can costs be date driven?
Managing Multiple Units of Measure Simultaneously
• Does the system support different units of measure for
receiving, producing, storing, and selling the same item?
• Can the system support catch weights with verification to
minimum and maximum catch weight?
• Can the system support net weight or standard weight
products (and track give-away)?
Meeting Regulatory Compliance
• Does the system provide adequate record keeping to meet
FDA and customer requirements?
• Can product characteristics be used to force or limit the
selection of specific lots/batches based on matching the
actual characteristic values to a specific customer request?
• Does the solution have eSignature capabilities? Does it
support necessary validation? Is ePedigree supported?
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Accelerating Product Recalls Through Lot Traceability
• Does the system maintain full forward and backward
lot/batch integrity when product is converted during
manufacturing, without losing any audit or trace linkages?
• Are lots tracked at every step in the process (from receiving
to manufacturing to shipping), capturingmmaterials,
production resources, people, processes, steps, and time?
• Is the traceability program capable of handling recalls and
mock recalls in minutes instead of hours?